Predictions that the individual health insurance market will now implode are misplaced.
First, in the wake of the Republican collapse of efforts to replace Obamacare, Medicaid will continue on unaffected. The Obama Medicaid expansion is fully funded for years to come. The nineteen states that did not take the expansion will continue to be on the outside looking in as their taxpayers continue to fund the expansion in the 31 states that did expand. And, health insurers will continue to enjoy that growth in their business as states continue to benefit from the open-ended federal funding.
The individual health insurance market will not collapse.
With about 3,000 counties in the U.S., I can't give you an absolute guarantee that there won't be a few that will not have an insurance carrier serving the Obamacare market in 2018. But generally, the vast majority of people eligible for subsidies will have at least one carrier to buy from.
The Kaiser Family Foundation is out with a recent study looking at medical loss ratios in the first quarter of 2017. They concluded that "individual market insurers on average are on a path toward regaining profitability in 2017."
I wouldn't go so far as to say that participating health plans will generally make money in 2017–the first quarter medical loss ratio is always better early on as consumers satisfy their ever-growing Obamacare deductibles.
But I do think 2018 could be a decent bottom line year for most Obamacare exchange insurers. And, 2019 should be just fine.
Does this mean the Obamacare insurance exchanges are working well?
If the stability and success of Obamacare is measured by insurance company profitability things are improving.
But if stability and success is measured by how the Obamacare insurance exchanges are impacting the people who have no other place to go for their health insurance, this program remains a disaster for at least the 40 percent of the market that are not eligible for subsidies.
First, Obamacare is a tale of two cities.
- The lower-income people who are eligible for Medicaid as well as the people who make less than 400 percent of the federal poverty level and are therefore capped in how much they will pay for health insurance–these people are doing fine.
- The 40 percent of the U.S. population that live in households that make more than 400 percent of the federal poverty level and get no premiums subsidies and pay the full cost of premiums, out-of-pocket costs and any big rate increases–these people are getting clobbered.
This is why in a bizarre way we can have stability in the Obamacare insurance exchanges: If health plans increase their rates by 50 percent or charge premiums into the thousands of dollars a month, there is virtually no impact on those who get a subsidy. True, those making over 250 percent of the federal poverty level will bear the impact of the ever-larger deductibles, but none of the premium increase.
Health plans have all but given up on getting a healthy risk pool under Obamacare. After four successive open enrollments run by the Obama administration, the program never got close to the percentage of the eligible pool needed to be successful.
The carriers looked at this landscape and concluded the only viable strategy was to just keep boosting the rates until they reach profitability. And, that is what they have been doing and that is why their medical loss ratios are starting to improve.
But that has meant huge premiums and deductibles. It is now not uncommon to see the lowest cost unsubsidized plan in a market for a family cost at least $1,000 a month, $12,000 a year, with an individual deductible in the $6,000 to $7,000 range. I have seen many areas where the lowest premium is already at $1,500 a month, $18,000 a year. Even for upper income families this is intolerable with premiums well over 10 percent of their gross income and deductibles making the plans useless to all but the sickest.
This is what the Kaiser Family Foundation would call stable: "The individual insurance market has been stabilizing in most of the country and could continue just fine."
The big political irony is that it is not the traditional Democratic constituency–lower income people in Medicaid or eligible for exchange subsidies–that are getting hurt. It is the upper income people not eligible for any benefits that more often voted for Trump and this Republican Congress that are getting left out as the health plans raise their rates toward profitability.
Even if Trump kills the $7 billion in annual payments to the health plans for the lower-income cost sharing subsidies it will not alter this trajectory. The carriers will simply respond by increasing their rates as of January 2018 to be able to fund the low-income cost sharing subsidies they are required to give people under the Obamacare law.
Obamacare is not healthy. Premiums and deductibles will continue to rise because the pool is out of balance with too many sick people for the number of healthy that have signed up. That will only get worse as the unsubsidized get priced out of the market.
But health insurers will focus their business on what will be for them the ideal market–people immune to what they, or the taxpayer, have to pay for the product.
The people who are and will be getting hurt badly will be the higher income ones who more often vote Republican.
But, Obamacare is well on its way to "stability."
But it is a bizarre form of stability.
And this will not change until this or another Congress and president change it.
This commentary originally appeared on Robert Laszewski's Health Care Reform Blog.
Robert Laszewski, the president of Health Policy and Strategy Associates, has 20 years of experience in the insurance industry, serving as a chief operating officer for nine of those years, before beginning his Washington, D.C. policy- and market-consulting business.
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